Minimum Wage: Basics You Should Know

Running a restaurant successfully requires more than just having great food; it's also about having great staff and following the law. Minimum wage laws require that you pay your employees at a certain level, but even that can vary depending on whether an employee receives tips or not. Here's what you need to know when you set pay rates for your employees.

Knowing the Laws

First and foremost, when paying your employees, you have to make sure you follow the law. Federal law requires that all workers earn a minimum wage in each state. But don't tipped employees have a different rate? Yes and no. In most states, employees who receive tips can be paid a lower wage of $2.13 per hour, but their tips must be enough to make their total compensation meet the minimum wage, which is $7.25 per hour (the federal minimum) in a number of states. If it's a slow night, it's up to the boss to make up the difference.

In eight states (Alaska, Hawaii, California, Nevada, Oregon, Washington, Nevada, and Minnesota), tipped employees must receive the full minimum wage in addition to their tips. So even if your waitstaff is earning plenty of tips, you still have to pay the full state or federal minimum wage, whichever is higher, in these states. Keep in mind that the definition of a tipped employee varies from state to state, but generally, it's someone who earns at least $30 per month in tips.

Following the Market Rate

Legally, all you have to do is meet your state and federal laws. However, if you want great employees, you're going to need to meet or exceed the market rate in your area. To put it simply, the market rate is what your competitors are paying. To determine who your competitors are, look at other establishments that are similar to the one you're running. For instance, if you own an affordable restaurant that's staffed with entry-level employees—in both the front of the house and back of the house—your competitors are most likely other affordable restaurants and retail organizations. On the other hand, if your restaurant is filled with highly skilled chefs and servers that have years of experience, your competition is going to be other polished, more upscale restaurants. You can even take a look at where your employees worked before they came to you and where they're going when they quit.

You'll want your wages to be around the same as your competition, and you should try to pay more for your best employees. After all, you don't want your hardest-working staff members to leave and head to a direct competitor. If your tipped employees are making a lot in tips, it may be okay to pay them the minimum wage as their hourly rate. If they aren't bringing in a ton of tips, you'll need to raise their hourly wage to stay competitive. You'll also notice that if you're operating restaurants in different towns, the market rate may vary.

When determining how much to pay your employees, start with these tips. Then do your research to make sure you're well aware of the laws and where you fall in comparison to your competition.